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Here's what 7 major banks think will happen to the Swedish housing market in 2018

The current trend is the biggest price drop on the housing market since the 2008, according to statistics from Valueguard.

After almost a decade of record price surges, the Swedish housing market is plunging.

Prices fell 7.8 percent in three months to December, the steepest decline since late 2008, according new data from the Valueguard-KTH Housing Index, HOX Sweden. Prices were down 2.5 percent from a year earlier, the biggest drop since March 2012.

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The million-dollar question is, is the market going to stabilize, or crash further? Yesterday, after local statistics from Svensk Mäklarstatistik were released - showing a 3 percent monthly drop in Swedish flat prices in December - several leading Nordic and global banks weighed in on what to look out for in 2018.

Nordea: Too early to say, but further falls may be coming

Jonas Ekströmer/TT

The Nordics’ largest bank sees further price declines in the short term. In the longer term, the bank is counting on a stabilizatizing market.

“It’s still too early to make a meaningful prediction based on January’s price drop, because the amount of transactions have been low during the first two weeks. There are indications that the supply of existing and new housing is still relatively high, which could further pull down prices in the coming months,” the bank writes in a statement.

Handelsbanken: Macro indicators support a stable housing market

Today’s house price statistics was worse than what Handelsbanken had expected. In spite of this, the bank still believes in a stabilization of prices rather than the beginning of a bigger decline.

“The employment rate is high just like household sentiment, while the cost of interest will continue to be low during 2018. The household savings are also at high levels. Going forward, we will pay plenty of attention to the [housing] sales activity. Even though the stock of unsold apartments will grow for some time, we are expecting that it will successively decrease,” Handelsbanken says.

Danske Bank: A market in decline

“We had expected a decline in apartment prices in Stockholm, and things turned out approximately as we had assumed. The downward trend has continued, which was also in line with consensus,” says Stefan Mellin, analyst at Danske Bank, to Direkt, a newswire.

He does speculate that there will be a stabilization in January-February, when buyers may rush to buy before new amortization requirements kick in on March 1. [Whereby households with mortgages that exceed their gross income 4,5 times have to amortise 1% more each year.]

“In other respects, there’s a downward trend,” he says.

Nykredit: The market could crash by 25 percent

The Stockholm housing market faces headwinds on many fronts and it’s not impossible that apartment prices will dip by 25 percent, says Tore Stramer, Chief Economist at Nykredit.

“During 2018, we are counting on a clear downward trend for apartments in Stockholm. A price decline of up to 25 percent on the Stockholm housing market is not impossible,” the Danish bank says.

Swedbank: 2018 will reveal a new normal

Swedbank Research isnt’ doing any changes to its Swedish housing market outlook. The bank is expecting a stabilization of apartment prices in Sweden overall this year, even though the higher supply and the tightened amortization requirements will set the tone on the market.

“We are also repeating that the amortization requirements will have considerable effects in the Stockholm and Gothenburg regions, but much less so in other parts [of Sweden]. Moreover, we still consider apartments as more vulnerable than houses,” the bank says.

Morgan Stanley: The housing market's woes could spread elsewhere

The price correction on the Swedish housing market continued for the fourth straight month – the only positive indicator was that the rate of decline seems to be slowing down, the Wall Street bank says.

Morgan Stanley sees a risk of contagion to other parts of the economy.

“We see that there’s a risk of contagion to retail first, and then also the office market. Swedish banks’ balance sheets are heavily exposed to properties, with 60 percent of their total lending connected to the property market.”

HSBC: If a crash happens, Sweden will have no ’ammo in the toolkit’

HSBC

HSBC didn't directly respond to yesterday's statistics, but last week released a housing market outlook for 2018.

While HSBC views Sweden’s macroeconomic indicators as protection against further price collapses, the bank does see a risk of a “downward spiral of confidence”. Considering Sweden’s highly leveraged households, this could quickly impact the economy in a major way, writes the bank’s Economist James Pomeroy.

Either scenario - a stabilization or crash of the housing market – “will provide key lessons for global policy makers”, Pomeroy says. If the latter happens, Sweden could be in trouble:

“In terms of the policy response, this would be the first time any economy has ever had to tackle a possible financial crisis in a world of negative rates. We have been critical of the Riksbank’s decision to leave its policy rate at -0.50% despite excellent macro data and if house prices were to fall sharply in 2018, there is no ammo in the toolkit, in our view.”